Pfizer: Don’t Underestimate Paxlovid’s Earnings (NYSE: PFE)
Pfizer (NYSE: PFE) the stock price is down 16% in the past six months as the company’s COVID-19 vaccine sales are expected to decline. However, investors ignore Paxlovid’s revenue, which I estimate at over $12 billion in the second half of 2022. Additionally, my analysis shows that due to its healthy financial position, Pfizer can remain profitable even with weaker COVID-19 vaccine sales in 2H 2022. I am bullish on Pfizer stock.
Q2 2022 Highlights
In its Q2 2022 financial result, Pfizer reported revenue of $28 billion, compared with revenue of $19 billion in Q2 2021, up 47%, driven by strong contributions from Paxlovid and Comirnaty. In the second quarter of 2022, Pfizer recorded the highest quarterly sales in its history. The company’s net profit increased 78% year-on-year, from $5.6 billion in 2Q 2021 to $9.9 billion in 2Q 2022. Pfizer reported 2Q 2022 adjusted profit of 11.7 billion, or $2.04 per diluted share, compared to 2Q 2021 adjusted earnings of $6.0 billion, or $1.06 per diluted share. The company’s cost of sales increased from $7.0 billion in 2Q 2021 to $8.7 billion in 2Q 2022. Additionally, Pfizer increased its R&D spending by $2.2 billion in 2Q 2021 to $2.8 billion in 2Q 2022. includes bivalent COVID-19 mRNA vaccine, COVID-19 enhanced mRNA vaccine, Paxlovid, modRNA, influenza vaccine, oral GLP-1 receptor agonist once daily and anti-interferon-β,” the company announced. For the first time in the industry, Pfizer has launched an initiative to distribute its medicines and vaccines to the 1.2 billion people living in 45 low-income countries at not-for-profit prices. “Even as we launch these initiatives to support a healthier and fairer world, we also remain committed to strong financial execution on behalf of our shareholders,” the CEO explained.
According ourworldindata.org, 68% of the world’s population has received at least one dose of a COVID-19 vaccine. More than 4 million doses of COVID-19 vaccines are administered every day. Additionally, more than 75% of people in low-income countries have not received at least one dose of the COVID-19 vaccine. Figure 1 shows that the number of Pfizer/BioNTech COVID-19 vaccine doses administered in the United States increased from 331 million as of March 31, 2022 to 352 million as of June 30, 2022, or 231,000 doses per day during the period . From June 30, 2022 to September 14, 2022, Pfizer/BioNTech COVID-19 vaccine doses administered in the United States increased to 363 million, or 145,000 doses per day during the mentioned period. Also, according to Figure 2, the doses of Pfizer/BioNTech COVID-19 vaccine administered in the European Union have increased from 606 million on March 31, 2022 to 620 million on June 30, 2022, or 154,000 doses per day during the period. From June 30, 2022 to September 18, 2022, Pfizer/BioNTech COVID-19 vaccine doses administered in the European Union increased to 631 million, or 138,000 doses per day during the mentioned period. My calculations indicate that the share of Pfizer/BioNTech vaccine doses administered worldwide increased from 64.05% in Q1 2022 to 63.96% in Q2 2022, and increased to 65.14% in Q3 2022 (as of September 19, 2022). However, Pfizer/BioNTech vaccine doses administered worldwide have increased from 858,000 per day in Q2 2022 to 566,000 per day in Q3 2022 (as of September 19, 2022). So, despite the increased share of the Pfizer/BioNTech COVID-19 vaccine in Q3 2022, I expect Pfizer’s revenue from its COVID-19 vaccine to decline in Q3 2022.
On the other hand, I expect the company’s revenue from the sale of Paxlovid to increase in the third quarter of 2022. In June 2022, Pfizer announced the submission of an NDA to the FDA for approval of Paxlovid for the treatment of COVID-19 in vaccinated and unvaccinated individuals who are at high risk of progression to serious disease due to COVID-19. On July 6, the FDA revised the EUA to allow state-licensed pharmacists to prescribe Paxlovid under certain conditions. According to the CDC, Paxlovid is one of two preferred antiviral drugs for those at high risk of progression to severe COVID-19. The CDC indicates that 50-60% of the U.S. population ages 12 and older will experience one or more risk factors for serious COVID-19 disease progression. Pfizer reaffirmed Paxlovid’s 2022 revenue forecast of $22 billion. In the second quarter of 2022, Pfizer’s Paxlovid sales were $8.1 billion. In the first half of 2022, the company’s Paxlovid sales were $9.6 billion. As of July 15, there were more than 41,000 sites supplied with Paxlovid in the United States. Figure 3 shows that Paxlovid usage increased significantly in the first month of Q3 2022. Aldo, from June 24, 2022 to July 15, 2022, Paxlovid usage in international developed markets increased by 116%. Thus, I expect the company to see $12 billion in Paxlovid revenue by 2H 2022.
Figure 1 – COVID-19 vaccine doses administered in the United States (by manufacturer)
Figure 2 – COVID-19 vaccine doses administered in the European Union (by manufacturer)
Figure 3 – Paxlovid is gaining popularity in the United States
Pfizer performance outlook
In the following section, I’ve provided a detailed analysis of Pfizer’s capital structure for readers who wish to scratch below the surface. In the second quarter of 2022, Pfizer recorded an impressive 39% increase in its cash position, which stood at $33.3 billion, compared to the previous result of $23.9 billion in the first quarter of 2022. Despite an increase of the company’s total debt, its net debt decreased by 42%. and was $7.17 billion in the second quarter of 2022. This was for growth in its cash flow, which outpaced the increase in its debt. In addition, it should be mentioned that Pfizer’s equity increased significantly in 2022 compared to its level in the same period in the second quarter of 2021. In the second quarter of 2022, total equity jumped and stood at 87, $46 billion from their level of $70.3 billion in the second quarter of 2021 (see Figure 4).
Figure 4 – PFE capital structure (in millions)
A more detailed analysis by analyzing the operating conditions of the business shows that Pfizer’s operating cash flow increased from $6.54 billion in the first quarter to $8.1 billion in the second quarter of 2022. Although cash operations are lower in the second quarter of 2022 compared to the same period in 2021, the projects will likely bring in more operating cash in the remainder of 2022. In addition, Pfizer’s capital expenditures increased by 643 million in the first quarter to $751 million in the second quarter of 2022. Ultimately, the company’s free cash flow ultimately held steady at $7.4 billion at the end of the second quarter, or 25% higher than its level of $5.9 billion at the end of the first quarter of 2022. Thus, Pfizer’s cash structure illustrates a healthy and well-realized operating position for first a better future (see Figure 5).
Figure 5 – PFE cash structure (in millions)
From the perspective of liquidity and business performance conditions, I studied Pfizer’s operating cash flow and CFO-to-sales ratios. PFE’s operating cash flow ratio has gradually increased over the course of 2022 and stood at 17.2% in the last quarter, although it is still significantly below its level of 31% in the second quarter of 2021. This ratio indicates the extent to which the company is able to repay its current liabilities with the cash flow generated by its commercial activities. To shed light, at the end of the second quarter, Pfizer could cover its current liabilities 17.2 times more. Additionally, PFE’s CFO-to-sales ratio increased by 396 basis points to 29.45% from 25.49% in Q1 2022. Overall, a decline in the business’ liquidity conditions compared to the same period last year is largely declining sales of COVID-19 vaccines, but its current situation is good enough to bring more benefits in the future (see Figure 6).
Figure 6 – PFE financial indicators
Its general liquidity ratio has been fairly stable over the past year: Pfizer’s general liquidity ratio in the second quarter of 2022 was 1.42x compared to 1.39x at the end of the last quarter. On the other hand, its cash ratio indicates an increase to 0.7x in Q2 2022 from 0.61x in the first quarter of 2022 after a drop of 0.73x at the end of 2021 (see Figure 7).
Figure 7 – PFE liquidity ratios
In short, after covering a more detailed analysis of Pfizer’s cash flow and capital structure and analyzing some financial metrics, it is observable that the company has performed well and is in an acceptable financial position. Additionally, despite declining COVID-19 vaccine sales in subsequent quarters, Pfizer’s Paxlovid revenue is expected to be strong in the second half of 2022. In short, based on the recent financial outlook, I believe the stock Pfizer has a bright future and is A Buy.